Eli Hurvitz and the creation of Teva Pharmaceuticals: An Israeli Biography
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In addition to 53-year-old Yanai’s personal talent, Eli favored him for the position primarily because of his managerial experience and his history of service in the IDF Since 2003, Yanai had been the CEO of Makhteshim Agan Industries, one of the world’s largest generic companies for crop protection products. Prior to that, he had spent 32 years serving in the IDF in command, staff, and training positions, as chief of the General Staff’s Planning Department, and as OC Southern Command. He had also been a candidate for the position of chief of staff. Eli viewed Yanai’s IDF service as a great advantage. After all, even at the age of 74, Eli still loved, valued, and admired the IDF as a key Israeli institution. The fact that Yanai was a recipient of the Medal of Distinguished Service for his actions during the Yom Kippur War was also undoubtedly an advantage in Eli’s eyes. Yanai had a BA in political science and economics from Tel Aviv University and an MA in national resource administration from George Washington University. He also was a graduate of the advanced management program at Harvard University’s business school and the US National Security College.
For all these reasons, Eli regarded Yanai as the best candidate for the position of CEO of Teva, even though he had no experience in the pharmaceutical sector, as other board members pointed out. Eli insisted that Yanai could overcome this and quickly learn all that was necessary. He was also not concerned by the short period during which Yanai would have to learn the material in question, since he would begin just two months before Makov’s planned departure on March 1, 2007. Eli decided that he would train Yanai.
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Yanai learned the ropes. From the beginning, he launched an acquisition campaign inspired by Eli’s strategic outlook. The three acquisitions he carried out between 2007 and 2008 (Medilac of Turkey, Bentley of Spain, and CoGenesys of the United States) were relatively small. His fourth acquisition, however, was the largest acquisition in Teva’s history. Less than two years had passed since the merger with Ivax and at the beginning of July 2008, Eli pitched another massive-scale acquisition to the board of directors. It was larger than Teva’s previous acquisitions and Yanai was behind it. This time, the company in the cross hairs was Barr Pharmaceuticals, the world’s fourth-largest generic pharmaceutical company. Barr was a global specialty pharmaceutical company operating in more than 30 countries worldwide. It engaged in the development, manufacturing, and marketing of generic and proprietary pharmaceuticals, biopharmaceuticals, and active pharmaceutical ingredients. The board of directors approved the acquisition and five months later, Barr Pharmaceuticals became a full subsidiary of Teva.
Eli and Yanai faced many skeptical questions about the reasoning behind the acquisition. What could another pharmaceutical company contribute to Teva”s performance, some asked. Could the group accommodate another company the size of Ivax, others queried. Their responses to such questions were clear and unequivocal. Even if Teva had to finance the company’s acquisition at $7.46 billion and cover an additional $1.5 billion in debts, the transaction would be worthwhile. It was consistent in all ways with Teva’s business strategy, as designed by Eli and members of Teva’s corporate management in the recent past.
Moreover, on the day of its acquisition, the total value of Barr Pharmaceuticals according to its share price on the New York Stock Exchange stood at $5.2 billion and Teva was willing to pay investors a premium of 35-45% above its market value. Although the value of Barr stock did in fact increase by 22% the day after the acquisition, the market price still reflected a price of only $66.50 per share, or only 16% more than its closing price on the NASDAQ the previous day. So there was still a substantial gap between the price that Teva was willing to pay in practice and Barr’s market price. How this came to pass is a question for the analysts to answer.
According to Eli’s assessment at the time, Barr’s acquisition would “reinforce Teva’s leading position in the sector” and “result in new record-breaking performance.” Barr’s integration into the group was meant to increase Teva’s lead over Sandoz, the second-largest generic player on the American market.
“The deal’s importance,” Yanai explained, “lies in the two companies’ integration, which creates a significant strategic and financial opportunity. The acquisition will increase our market share in the United States and the expanding markets of Europe and will facilitate growth far beyond the original targets of the strategic plan of 2012.”
This explanation suggests that the main reason for the acquisition was the fact that Barr, a company that was publically traded on the New York Stock Exchange, specialized primarily in generic products and operated in 30 countries around the world. Its core business was similar to that of Teva. For example, its most important market was the US, where it sold 26 brand-name medicines that it had developed on its own and 120 generic drugs. It also had 70 products awaiting FDA approval whose combined annual sales potential was estimated at $30 billion. In addition to the United States, Barr operated in Europe and particularly in Eastern Europe, following its acquisition of the Croatian company Pliva in late 2006. Pliva also operated in Russia and Poland. Outside the United States, Barr sold more than 1,000 drugs.
To a great extent, Barr’s product catalogue and R&D activities balanced out those of Teva and were expected to expand the array of generic and specialty products it sold to its customers around the world. The acquisition would provide Teva with a new stock of products and, most importantly, with opportunities for product approval. It would also bolster its operations in the area of specialty pharmaceuticals by adding women’s health pharmaceuticals, particularly birth control pills. It thus enhanced Teva’s balanced business model. The explanation offered by Yanai and Barr chairman and CEO Bruce Downey – that “the acquisition unites two large, strong companies which are joining forces to take advantage of the generic opportunities in the pharmaceutical industry” – went a long way to address the questions surrounding the deal.
Another reason for the acquisition was the financial strength of Barr, which concluded the third quarter of 2008 with $603 million in income. Its net profit in the first quarter of the year had been $62 million, but it was expected that its profits would increase in the future and that the acquisition would help increase Teva’s share price beginning in the fourth quarter of 2009.
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The acquisition of Barr Pharmaceuticals in 2008 was Eli’s final acquisition. During the last three years of his life, he witnessed subsequent Teva acquisitions, such as Cephalon, another American pharmaceutical giant; Ratiopharm, the second-largest generic company in Germany; and Taiyo of Japan. However, because of his illness, he was far less involved in their acquisition.
The acquisition of these companies, as Yanai explained, were “inspired by Eli and carried out in the spirit in which he operated. He was pleased with their implementation and their contribution,” particularly the additional value which they provided Teva. The acquisition of Ratiopharm, which was purchased after a fierce struggle with large pharmaceutical companies, made Teva the number one generic pharmaceutical company in Europe and a leader in the major markets of the continent: Germany, the United Kingdom, Spain, Italy, and Holland. Cephalon made Teva the world’s largest company in the field of specialty pharmaceuticals designated for a relatively small consumer population, with sales of more than $8 billion in 2011.
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During his first eight years as chairman of Teva’s board of directors, Eli continued to be referred to as Mr. Teva and for good reason. The corporate performance statistics of the company he had built speak for themselves. Teva was the world’s largest generic pharmaceutical company and one of the 15 most important pharmaceutical companies in the world.
When Eli was first appointed CEO of Teva in 1976, one share of Teva was worth 25 cents and had a per-share profit of 2 cents. By the beginning of 2011, Teva’s share value had multiplied by 180 to stand at $45.20. During the same period, its per-share profit had multiplied by 247 t
o stand at $4.95. The strategic path that led Teva to these remarkable achievements had been demarcated by one man: Eli Hurvitz.
Chapter 24
A Time to Live, A Time to Die
Eli continued going to Teva’s corporate offices as he always had. During the first two-and–a-half years of Shlomo Yanai’s tenure as CEO, between 2007 and 2009, Eli trained him and worked alongside him. Their working relationship was one of close, positive, and full cooperation. Yanai coordinated his actions with Eli and both were satisfied by the outcome. Slowly but surely, Eli felt he could relax somewhat, loosen his grip, and engage the world outside of Teva.
His presence was desired in many places and the political world courted him. In the past, he had avoided politics. From time to time, his name was proposed as a candidate for one important position or another, but he always politely declined the offer. As mentioned above, he had been asked to serve as Israel’s finance minister prior to the parliamentary elections of 1984. During the 1990s and the beginning of the new millennium, his name was repeatedly suggested as a possible candidate for that position. During the election campaign of 1992, he was approached with the same proposal from close associates of Yitzhak Rabin and four years later from close associates of Shimon Peres. Prior to the spring 1993 mayoral election in Jerusalem, his name was again proposed as a universally agreed-upon candidate for the position of mayor.
In 2006, a group of individuals associated with the Labor Party approached him with an offer to serve as president of the State of Israel, after an agreement on the subject was reached with the right wing. Like the previous political offers he had received, Eli firmly but politely turned this one down too.
“I’m not suited for it,” he insisted. “I have different priorities.”
Eli’s refusal to take the plunge into politics was almost understandable, at least to Eli. His abstention stemmed not from the fact that he was unfit for the positions he was offered or from modesty. The truth was that as long as he was hard at work at Teva, he preferred to steer clear of this other world, which would be emotionally draining. Positions such as finance minister and mayor of Jerusalem, not to mention the position of president of the state, would have required his undivided attention. Eli was a meticulous man who treated every position he took upon himself with the utmost gravity. He knew that accepting one of these positions would force him to abandon the company he had built – his life’s work – and had no intention of doing so.
However, he was always happy to give advice. Prime ministers, finance ministers, the Bank of Israel, financial institutions, and, of course, industrial institutions often consulted with him and appreciated his answers to their questions. He served on the board of directors of large financial and economic corporations, such as Koor, Vishay, and Bank Leumi, and was a member of official government and public committees that government ministers and members of Knesset established for various purposes.
The many individuals who sought Eli’s advice included governors of the Bank of Israel such as Michael Bruno, Jacob Frenkel, and Stanley Fischer, who met with him at their request at various points during their tenure. The same was true of Israel’s ministers of finance from all parts of the political spectrum. Eli was a welcome visitor in the offices of Dan Meridor, Benjamin Netanyahu, Ehud Olmert, and Yuval Steinitz. Israeli prime ministers such as Shimon Peres in the 1980s, Yitzhak Rabin the following decade, and Ehud Olmert and Benjamin Netanyahu during the new millennium summoned him to their offices periodically to solicit his opinion on the major economic issues of the day.
“I learned much from him,” Netanyahu recounted. “I admired his wisdom and his achievements.”
Yuval Steinitz recalls how “on the first day of my appointment as finance minister … on the eve of a serious world financial crisis, Eli Hurvitz was the first person – the only person – to present himself at my office. He arrived wearing a huge smile and said: ‘I’ve come to help out as a volunteer.” Shimon Peres regarded Eli as “a personal friend.”
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He was always willing to make the trip to their offices and answer their questions. When informed of a general issue ahead of time, he would come prepared with papers and notes containing outlines of plans, key information, and, most importantly, strategy, on which for him all else was based. He focused on long-term policymaking. What was important, he would say, was “not what will happen today, but the situation 15 or 20 years from now.”
For these reasons, Eli was asked, along with former Finance Ministry director-general David Brodet and strategic consultant Sami Friedrich, to chair a public committee consisting of a broad array of experts and public figures that was formed to demarcate the vision and strategy that would guide Israel until its 80th anniversary. This project, known as “Israel 2028: Vision and Strategy for Economy and Society in a Global World,” was initiated by the US-Israel Science and Technology Foundation. The plan it generated employed formulations favored by Eli and reflected major components of his general approach as the CEO of Teva, such as the focus on strategy and long-term activity. The plan advocated adopting a “national strategy,” proposed broad solutions for all major realms of life, and offered a long list of goals, targets, and recommendations to ensure Israel’s future growth. For example, it proposed measures to raise Israel’s level of competitiveness in macroeconomics matters, public service, and the labor market, and even to facilitate the integration of Israeli companies into global markets.
The plan also advised caution: “Today [2008], the Israeli economy is not facing immediate danger, but warning signs caution us of real danger to the future of society and the state.” The signs it enumerated included some of the widest socioeconomic gaps in the western world, significant social polarization, relatively slow economic growth, low participation in the workforce, an education system with mediocre results, and declining levels of universities and advanced research, among other issues.
The plan offered a long list of operative recommendations, such as expansion of the labor force, integration into the global market, productivity incentives, the continuation of incentives for start-up industries, reducing poverty, education reform, improvements to infrastructure, and investments in environmental quality. Though these recommendations are common enough and are voiced from time to time, the report’s innovation, and the reason it was important, was its presentation of them all in one strategic program that looked 20 into the future.
On December 12, 2011, a ceremony was held in which Teva’s legendary CEO was posthumously named man of the year by Israeli economic daily Globes “because of his vision, Zionism, daring, and modesty.” In his speech at the event, Bank of Israel governor Stanley Fischer quoted an excerpt from Israel 2028 that articulated, “the vision and greatness of Eli Hurvitz:”
Israeli society will be open and enlightened; its economy will be free, balanced and fair.... The state will achieve all of this through collaboration of all of its sectors, while maintaining its values and strengthening Israel’s image in the eyes of its citizens, its partners around the world, and the Jewish people…. Given the considerable challenges Israel faces, it cannot afford to wallow in mediocrity or to relinquish excellence…. Adopting high standards across the various domains will bring us closer to becoming an exemplary society.
On May 4, 2008, the strategic program Israel 2028 was adopted by Prime Minister Ehud Olmert and approved by the Israeli government. In his explanation of why the government sought “to adopt the plan as a program of national strategy,” Olmert asserted, “the plan presents a national vision and a strategic plan for making Israel one of the world’s 15 leading countries in terms of per capita GDP, while involving all sectors of the population in the endeavor and the benefits it yields.” Once again, Eli’s strategic outlook and long-term vision, which enjoyed such prominent expression during his years at Teva, had been adopted, this time, by the Israeli government.
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Eli referred to Pontifax, the investment firm he established after retiring from the position of CEO of Teva, as his “baby.” He saw it as an important part of diversifying his activities as a retiree. However, contrary to his plans, he continued working as usual as he set up this new company.
In many ways, the idea behind the company ran completely counter to Teva’s line of work. Pontifax would not manufacture existing drugs, but rather seek out new, hitherto nonexistent directions in pharmaceutics – creating something from nothing. Eli’s plan was to establish a venture capital fund that would invest in the biotechnology industry, primarily in the life sciences and medical equipment. Eli was first introduced to the idea by two young men: his son-in-law Tomer Kariv (Dafna’s husband), who already specialized in venture capital, and his friend Ran Nussbaum.
They raised capital for the initiative in three separate efforts. The first, in 2004, mobilized the relatively modest sum of $32 million for the first fund (Pontifax I). The fund’s investors included prominent figures and institutions from the financial and scientific sectors; well-known businessmen such as Poju Zabludowicz, Mori Arkin, and Mort Mandel; professors from the life sciences, such as Moshe Many, Michael Sela, Ruth Arnon, and Jonathan Javitt; and investment firms and insurance companies. Eli’s reputation, the fact that he himself had invested in the fund, and, of course, his successes in the pharmaceutical sector, led the investors to believe in his vision and trust him.